Is the "Average Retirement Savings by Age" Approach Outdated for Millennials?

Even if you haven't put all that much thought into saving for retirement, you're probably familiar with charts like these that outline how much you should have saved by certain age milestones. While most financial advisers recommend this "average retirement savings by age" approach, we asked for money management tips from someone who has radically different advice for millennials. Priya Malani, the money-savvy co-founder of Stash Wealth, suggests 20- and 30-somethings move away from the traditional model of saving for retirement in favor of something a bit more flexible and customizable.

According to Malani, the conventional approach often results in millennials over-saving for retirement, leaving them short-changed when it comes to achieving other financial goals like buying a house, planning a wedding, or funding a hard-earned vacation. "What worked for our parents' generation doesn't necessarily work for us," explains Malani. "Millennials are rewriting pretty much every playbook, including what retirement is and what it means to us." Ahead we asked Malani for advice to make saving money for retirement more manageable (not to mention more modern).

Millennials—here's what you need to know about saving for retirement, including why you should consider an unconventional plan, what to do if you haven't started, and common mistakes to avoid.

PRIYA MALANI: Each and every millennial has different expectations for what retirement will look like and the age at which we want to retire. Some of us don't want to retire at all, some of us want to retire at 35 (and have), and others prefer to take sabbaticals every few years.

MD: Why do you advise 20- and 30-somethings to break from conventional "average retirement savings by age" estimates?

PM: They are way too generic and unrealistic for most H.E.N.R.Y.s (high-earning-not-rich-yet millennials). They can often make people oversave for retirement (we see this all the time—people who are maxing their 401k) and forget about all the goals they have between now and retirement like buying a home, upgrading their lifestyle, and planning for a wedding or a family. There are just too many variables to use a generic number for everyone. In fact, using general targets can be a disservice.

On what to do if you haven't started saving

MD: What are some general guidelines for a budget-conscious 20-something who wants to start saving for retirement but doesn't necessarily want to meet with a financial adviser?

PM: Follow these take-home pay breakdown guidelines. (Keep in mind these are just high-level guidelines because everyone wants a different kind of lifestyle now and in retirement.)

For people without debt, follow the 50/30/20 rule: 50% of your take-home pay should be going toward fixed expenses (like rent, utilities, boring stuff, etc.), 30% of your take-home pay should be going toward flexible expenses (life, happy hour, SoulCycle, entertainment, the fun stuff, etc.), and 20% should be going toward saving for short-term (friend's weddings, annual vacations, saving up for a new couch, etc.) and long-term (retirement) goals with about 10 to 15% of that going toward long-term savings.

For people with debt, follow the 70/20/10 rule: 70% of your take-home pay should be going toward fixed and flexible expenses (doesn't matter how you split it up), 20% should be going toward paying down your debt, and 10% going toward short- and long-term goals. Once the debt is paid off, you can graduate to the 50/30/20 rule.

MD: Are there any online tools millennials can use to start creating a retirement plan?

PM: Use an online calculator. Play around with the numbers to figure out how to save such that the amount of money you'll have saved in retirement will spit off an income similar to what you have today (on the calculator below, use 100% income replacement). If you do it that way and recalibrate the savings number every year as your income goes up, you'll be able to save for the future without compromising your lifestyle today. Here's the calculator I like.

On Making the Most of Every Paycheck

MD: What's the easiest way to maximize your savings?

PM: Create a plan, and automate it. If your plan is to "save whatever's left over at the end of the month," there's never anything left over. That's why automating your retirement savings is by far the most important thing you can do. Automate savings going into your IRA or Roth IRA (depending on which you're eligible for). Also, some 401(k) plans allow your set your contribution to automatically increase each year by a certain percentage. That's a great way to make sure your savings increases in lockstep with your income.

MD: What's the number one piece of advice you'd give to someone saving for retirement?

PM: Automation is an absolute must. It's the number one hack that works for pretty much everyone. Many of us get tempted to think we are investing geniuses and start fiddling with things. A study showed that most people's best-performing investment account was their 401k because they forgot their password.

Our motto is: "Set it and forget it." Don't touch it, play around with the investments, or borrow from it. One of the worst things you can do is to borrow from or liquidate your retirement savings before retirement. If you start early, put a small amount away, and never touch it, you'll be shocked by what you've built up come retirement.

On Common Mistakes

MD: What are some common mistakes to avoid when saving for retirement?

PM:1. Thinking of your retirement savings as money you can borrow from. There is a whole host of negative consequences.

2. Oversaving for retirement is another common thing we see with our H.E.N.R.Y.s.

3. Putting your money in a retirement account but keeping it in cash. If you do that, you're losing money each year.